Shareholders' Agreement As An Element Of Succession Planning

Author:Ms Silvia Margraf and Christophe Rapin
Profession:meyerlustenberger | lachenal
 
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  1. Introduction

    The contracting parties use a shareholders' agreement to agree the rights and obligations associated with their position as shareholders. The contracting parties can be just some or all the shareholders of a company. The purpose of the shareholders' agreement as a tool for succession planning is to prevent the transfer of the company's shares to non-shareholders on the one hand, and on the other to secure the management and decision-making ability of the company. The shareholders' agreement is used as a tool for succession planning both internally between the members of a family as well as externally (e.g. in the case of a management buyout). The following discussion of the possible contents of a shareholders' agreement used as a tool for corporate succession planning only has general validity. A shareholders' agreement must always be adapted to the specific circumstances, taking account of other succession planning options (under marital, inheritance and company law).

  2. Contents if used for succession planning

    2.1 Disposition rights

    The most effective way to prevent the sale of company shares to non-shareholders is to include rights of first offer, rights of first refusal, call and put options, and tag-along and drag-along rights in the agreement.

    The right of first offer means that the shareholder wishing to sell his shares must offer the shares to the other shareholders with a right of first offer before any contract may be concluded with a third party.

    The right of first refusal means that the shareholders with a right of first refusal may assert their right of first refusal upon notice of the shareholder selling his shares as soon as the shareholder selling his shares has concluded a purchase contract for the shares with a third party. In this case the shares must be transferred at the same conditions agreed in the contract with the third party, in particular with regard to the purchase price, unless a specific price or method for calculating the price of the shares had been agreed in advance (limited right of first refusal). Rights of first refusal and rights of first offer are usually combined, so that the remaining shareholders who did not exercise the right of first offer will have a second opportunity to acquire the shares (when the shareholder wishing to sell his shares has found a buyer for the shares).

    When a call option is agreed, the holder of the call option receives the right to buy the shares whenever an...

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